Probe ordered into Detroit pension funds, benefits

DETROIT (AP) ó Detroitís state-appointed emergency manager on Thursday ordered an investigation into possible waste, abuse, fraud and corruption in the cityís two pension funds and all employee benefit programs.

The order was signed on the same day members of Kevyn Orrís restructuring team met with union leaders on plans to cut into health care and pensions as part of city debt restructuring.

The joint investigation will be led by Detroitís auditor general and inspector general, who will report their findings to Orr within 60 days.

ďAs weíve looked into the various operations into the pensions and other benefits, we found some irregularities that we wanted to look at,Ē Nowling said.

Orr has warned that without millions of dollars in concessions on bond and pension debt the city risks going into municipal bankruptcy. He met last week with about 180 bond insurers, pension trustees, union representatives and other creditors on concessions needed to keep Detroit out of bankruptcy.

His team said Detroit is defaulting on about $2.5 billion in unsecured debt and is asking creditors to take about 10 cents on the dollar of what the city owes them. Underfunded pension claims likely would get less than that.

The cash-strapped city owes about $3.5 billion to Detroitís general services pension fund and its police and fire pension fund, according to Orr spokesman Bill Nowling.

Orr, a bankruptcy expert, was hired by the state in March to fix Detroitís finances. The cityís budget deficit is approaching $380 million. Orr has said long-term debt could top $17 billion.

His investigation order into the pension systems follows years of mismanagement and allegations of corruption associated with the funds.

An executive overseeing $200 million in real estate investments pleaded guilty earlier this year to conspiring to bribe a city treasurer to get business. The former city treasurer also is under indictment.

Earlier this year, an Alabama businessman agreed to pay $4 million to settle a lawsuit with Detroitís pension funds over a loan to his freight airline. Donald Watkins was sued in 2008 after the pension funds said he missed a loan payment and broke other agreements.

And a federal grand jury in March indicted a former general counsel for Detroitís police and fire pension fund. The government says Ronald Zajac forced people who had business with the pension funds to pay thousands in cash to benefit pension trustees.